Riding on the country’s newly minted investment grade rating, the Lucio Tan-led conglomerate LTG Group Inc. raised $920 million (P37.72 billion) from the sale of shares of stocks in a landmark equity deal that commanded unprecedented global investor interest and a hefty market premium.

It was the biggest ever equity offering overseas by a Philippine firm.

The pricing of P20.50 per share put a 21-percent premium on the three-month average before the deal.

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Analysts said the deal price—which was set right at the top end of the indicative price range of P18 to P20.50—was not cheap. But they noted that offshore investors were likely banking on the favorable Philippine macroeconomic backdrop alongside rosy long-term prospects for LTG.

On news of LTG’s equity deal, the company’s shares surged 11.11 percent to a record high P23 per share.

The group’s selling proposition for LTG is that it’s a large conglomerate owned by one of the Philippines’ most prominent businessmen, with two-thirds of its business focused on consumer-based segments and most of which were quite dominant in their business lines.

Investors based in Asia accounted for 42 percent of the deal. Those in Europe acquired 23 percent and those from the United States, 36 percent.

Long-term global institutional investors constituted 82 percent of the transaction, while hedge funds and private banks constituted 18 percent, said Lauro Baja III, managing director at UBS Philippines, which acted as the sole book runner, sole global coordinator and lead manager for this transaction.

“Lucio Tan’s debut into the equity capital markets has broken many records in deal-making in the Philippines. The phenomenal success is a great tribute to him and his management team. He has now crystallized the value of the business empire he built in the country and has set the stage for future expansion,” Baja said in a text message from New York.

Formerly Tanduay Holdings, LTG was converted by the Lucio Tan group into a conglomerate with the infusion of other key businesses: Philippine National Bank (the surviving entity in the merger with Allied Bank), Fortune Tobacco Corp., Asia Brewery Inc. (and subsidiaries) and Eton Properties Inc.

Expansion

About a third of the proceeds will be used to expand LTG’s banking business, another third to the liquor and property businesses and the remainder for the repayment of certain debts.

“It’s good that they were able to sell at that price. Probably it’s due to the good timing as there’s a lot of interest in Philippine stocks and they (overseas investors) are looking for something big aside from the usual large-cap stocks such as those from the Ayala or SM groups,” said Joseph Roxas, president of local stock brokerage Eagle Equities.

Before the LTG deal, the two largest IPOs completed in the country were those conducted by the Henry Sy-led SM Investments Corp. and budget carrier operator Cebu Air Inc. SMIC raised P28.8 billion in 2005 and Cebu Air, P23.33 billion in 2010.

Technically, a ‘re-IPO’

Technically, LTG’s exercise was a re-IPO or a follow-on offering after the group infused key businesses in what used to be a purely liquor company, Tanduay Holdings.

For those looking at a 12-month horizon, the pricing was expensive, said Jose Mari Lacson, head of research at Campos Lanuza & Co. “It’s hard to justify as cheap because of the impact of the sin tax on earnings of key businesses.

“The group must earn at least like Ayala Corp. at P12 billion in 2013 to make sense. Also, better valuation will require more information on the restructured group, which has not been fully disclosed yet. That’s why annualizing may not be a completely accurate basis,” Lacson said.

“But if you’re an institutional investor with a horizon over 12 months, it would make sense,” he said.

At the deal price of P20.50 per share, Lacson said this translated to 33 times LTG’s earnings in 2012 while most conglomerates were trading at only close to 18 times earnings. Assuming a 15-percent growth, this would translate to a price-to-earnings multiple of 29 times prospective 2013 earnings.

Testament to PH economy

But due to a strong demand from the international market, LTG was able to sell 1.84 billion common shares worth $920 million and the option to upsize by 15 percent was exercised.

The orders built at the end of a global road show amounted to over $3.5 billion with the participation of over 130 institutional investors, said Baja. Credit Suisse, Deutsche Bank and JP Morgan acted as co-lead managers.

“We are extremely pleased with the strong level of interest that the LTG Group received from the global investor community and we welcome them as our shareholders. This is a testament to the positive long-term outlook on the Philippine economy and we remain fully committed to support the continuous growth of our country and LTG,” said LTG president Michael Tan, considered the heir-apparent to the Lucio Tan empire.

Tan and some LTG key officers closed the deal after an international road show that covered the Philippines, Singapore, Hong Kong, London, New York and Boston.

“This offering validates LTG’s position as a leading conglomerate in the Philippines. We look forward to the next stage of LTG’s evolution as a leading conglomerate in the Philippines,” LTG chairman Lucio Tan said.

The elder Tan, 78, is the second-wealthiest man in the country, based on the latest roster drawn up by Forbes Magazine. He ranked 248th globally on this year’s list with an estimated net worth of $5 billion, improving his global ranking from 314th.

But apart from his businesses in the Philippines, Tan has vast investments in China, Papua New Guinea, Guam and other offshore markets.

Oversubscribed

The deal was structured as a top-up offering in which LTG’s principal shareholder Tangent Holdings lent secondary shares to facilitate a quick equity deal.

This was also the first equity deal that capitalized on the first Philippine sovereign investment grade rating issued by Fitch Ratings before the Lenten break.

“The transaction was already oversubscribed even before the road show. There were 11 world-class long-term cornerstone investors that committed to subscribe to one billion shares before the official book build—the first time such process was ever done in the Philippines,” Baja said.